C Logue Caplaw: New Rules of the Road

10/6/2016

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NEW RULES OF THE ROAD:

PRESENTED BY: Christopher B. Logue, Esq.

[email protected] (617) 357-6915

Region VI Annual Conference Thursday, October 13, 2016

Complying with the FLSA Overtime Rule

Agenda

FLSA Overview

The New Overtime Rule

White Collar Exemptions

Options for Compliance with the New Rule

Head Start Teachers

What Has Not Changed

FLSA Coverage

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mailto:[email protected]

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DISCLAIMER

This presentation only addresses the federal Fair Labor Standards Act

– It does not address state law

State law will govern where:

– It is more protective of employees than the FLSA

– The FLSA does not apply to an enterprise or individual employee

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Fair Labor Standards Act – Overview Requires minimum wage & overtime pay for covered

employees, unless exempt – Includes employees in public and private sectors

“White collar” exemptions (29 C.F.R. Part 541)

– Most commonly used exemptions – Cover certain executive, administrative, professional (EAP),

outside sales, and computer employees – Three tests to determine if employee is exempt:

• Salary basis test, salary level test, duties test

A CAA may choose to treat an employee who meets all 3 tests as non-exempt (and pay OT for work > 40 hours) – However, a CAA and an employee cannot agree to waive

OT pay if the employee is non-exempt

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CURRENT Overtime Rule NEW Overtime Rule

Currently, salaried employees who meet one of the duties tests must

earn at least

$455/week ($23,660/year)

in order to be classified as exempt from the FLSA’s minimum wage

and overtime protections

Beginning 12/1/2016, salaried employees who meet one of the

duties tests must earn at least

$913/week ($47,476/year)

in order to remain exempt from the FLSA’s minimum wage and

overtime protections

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Increased Standard Salary Level Test

29 C.F.R. § 541.607


No change to standard duties tests

Includes automatic updates to standard salary level every 3 years

– DOL to publish updated salary levels at least 150 days prior to effective date in Federal Register

Bonuses and catch-up payments may be used to satisfy up to 10% of standard salary level

DOL info/guidance on the new rule:

https://www.dol.gov/whd/overtime/final2016/

81 Federal Register 32391 (May 23, 2016); codified at 29 C.F.R. § 541.607

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Other Provisions

https://www.dol.gov/whd/overtime/final2016/

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White Collar Exemptions

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Requirements for EAP White Collar Exemptions (29 C.F.R. Part 541)

Executive Administrative Professional

Salary Basis Test

Must be paid on salary basis

Must be paid on salary or fee basis

Must be paid on salary or fee basis

(except for doctors, lawyers & teachers)

Salary Level Test

$913 per week ($47,476 per year)



(except for doctors, lawyers & teachers)

Duties Test (1) “Primary duty” must be managing org. or a dep’t or

subdivision; (2) must customarily & regularly

manage 2+ other employees; and (3) must have authority to hire or fire other employees, or

have significant input into hiring/firing/promotion

decisions

“Primary duty” must: (1) involve office or non-manual work directly

related to management or general business

operations of the employer or customers; and (2)

include exercise of discretion & independent judgment with respect to

matters of significance

“Primary duty” must be to perform work that either:

(1) requires advanced knowledge in a field of

science or learning customarily acquired by a

prolonged course of specialized intellectual

instruction; or (2) requires invention, imagination, originality, or talent in a

recognized field of artistic or creative endeavor

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Professional Exemptions

Learned professionals

Creative professionals

Teachers (no salary basis or salary level)

Doctors (no salary basis or salary level)

Lawyers (no salary basis or salary level)

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Other Exemptions Outside sales employees

Computer employees

Part-Time or Seasonal Employees

Exempt status is determined on a workweek basis

– An employee who meets one of the white collar exemption duties tests and is paid at least $913 per week on a salary basis in any week in which he/she performs any work (less any permissible deductions under the salary basis test) will be considered exempt that week

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Options for Compliance with the New Overtime Rule

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Poll #1: Compliance Concerns

Other than increased costs, which one of the following is your CAA’s main concern about compliance with the new overtime rule?

a. Tracking and monitoring hours worked

b. Effect on pay scales

c. Employee morale and communicating to staff

d. Unionized staff/collective bargaining agreement

e. Other

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Steps for Compliance

Step 1: Evaluate duties of current exempt employees

– Those who do not meet one of the standard duties tests are not eligible for a white collar exemption

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Step 2: If an employee meets one of the standard duties tests, determine whether:

– S/he makes less than $913/week; and

– If so, how many hours s/he generally works, including overtime hours

oHave employees track all of their hours (if they don’t already)

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Step 3: Determine the best and most efficient way to comply with the new overtime regulations for affected positions

– Determine effect on program budgets

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Step 4: Generally, current exempt employees who make less than $913 per week will need to be reclassified as non-exempt as of December 1, 2016

– Non-exempt employees will need to track all hours worked

– But if they don’t work over 40 hours per week, their pay will not be affected

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Note: Employees who meet the requirements of the teacher exemption and earn less than $913 per week do not need reclassified as non-exempt

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Options for Compliance 1. Raise salaries to maintain exempt status 2. Convert to hourly employee and pay for all hours

worked, including OT for hours worked over 40 3. Continue to pay a fixed salary and pay OT above salary

for hours worked over 40 – OPTION 3A: Pay salary for first 40 hours, plus 1.5x OT – OPTION 3B: Pay salary for a predetermined workweek longer

than 40 hours, plus 0.5x OT for OT hours included in the predetermined workweek, plus 1.5x OT for all additional hours

– OPTION 3C: Fluctuating workweek (pay fixed salary for all hours worked, plus 0.5x OT)

4. Reallocate earnings between regular wages and overtime to approximate same overall compensation

5. Restructure job duties

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Option #1

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Raise Salaries to Maintain Exempt Status

Example #1: Ashley, a center director of a CAA’s Head Start program, is paid a salary of $45,000 per year. Her job duties qualify her for the executive exemption. Ashley’s job requires regularly working overtime to direct center operations during the full day that the center is open. The CAA may choose to raise Ashley’s salary to $47,476 or more per year to maintain her administrative exemption.

Best for employees who:

Meet a standard

duties test

Work over 40 hours

per week

Earn close to the new

salary level

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Option #2

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Convert to Hourly Employee and Pay for All Hours Worked

Example #2: Brian, the director of a CAA’s homeless shelter, is currently paid a salary of $31,200 per year. Although he works a few OT hours from time to time, Brian typically works no more than 40 hours a week. The CAA may choose to treat Brian as an hourly non-exempt employee and pay him an hourly rate of $15. For typical workweeks where Brian works 40 hours, the CAA would pay him $600 (40 hours at $15 per hour), and if Brian works any OT hours, the CAA must pay an additional OT premium at time and a half ($15 X 1.5). If Brian works fewer than 40 hours, the CAA would pay him for the actual number of hours he worked at his regular rate of $15 per hour.


Salaries are not close to

new salary level

Do not work a

consistent # of hours each week

Do not regularly

work overtime

Option #3

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Treat as Salaried, Non-Exempt and Pay OT Above Salary

CAAs may continue to pay non-exempt employees a salary – FLSA does not require non-exempt employees to be hourly employees

– However, CAAs must track and record actual number of hours worked by employee and pay OT compensation for hours worked over 40

– CAAs must pay OT at one and one half times the employee’s regular rate of pay (salary divided by # of hours the salary is intended to compensate) (29 C.F.R. § 778.113)


CAA wants to pay on a

salary basis

May work over 40

hours per week

Salaries are not close to

new level

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Option #3A

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Pay Fixed Salary for 40 Hours and Pay OT Above Salary

Example #3A: A CAA pays Alexa, a development manager at a CAA (non-exempt), a fixed salary of $44,200 per year ($850 per week) for a 40 hour workweek. Her regular rate of pay is $21.25 per hour ($850 divided by 40 hours). If Alexa works 45 hours one week, the CAA would pay her 1.5x OT for the additional five hours at a rate of $31.88 per hour. Thus, for that week, Alexa should be paid $1,009.40, consisting of her $850 per week fixed salary plus $159.40 in overtime compensation.


Typically work 40

hours per week

Work limited OT

Do not work the

same # of OT hours

each week

Option #3B

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Example #3B: A CAA wants to treat Jamie, its HR manager, as a salaried, non-exempt employee. Jamie usually works between 42 and 45 hours per week, and occasionally works up to 50 hours per week. The CAA tells Jamie she will earn a fixed salary of $44,200 per year ($850 per week) that covers up to 50 hours per week (not including overtime payments), but Jamie is not expected to work 50 hours every week. Because the $850 per week salary is intended to compensate Jamie for 50 hours of work, Jamie’s regular rate of pay is $17 ($850 divided by 50), regardless of the number of hours she actually works.

Pay Fixed Salary for a Workweek > 40 Hours, Pay 0.5x OT for OT Hours Included in Workweek, and

Pay 1.5x OT for Additional Hours

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Option #3B Pay Fixed Salary for a Workweek > 40 Hours,

Pay 0.5x OT for OT Hours Included in Workweek, and Pay 1.5x OT for Additional Hours

CAA would pay her $850 + 0.5x OT for hours 41-50 +

1.5x OT for hours > 50

So, if she works 52 hours: $850 (salary for 50 hours) +

$85 (0.5x OT for hours 41-50) + $51 (1.5x OT for hours 51-52) +

Total: $986

If Jamie works > 50 hours

CAA would pay her $850 + 0.5x OT

So, if she works 46 hours: $850 (salary for up to 50 hours) +

$51 (0.5x OT for hours > 40) Total: $901

If Jamie works < 50 hours

Paying less (except deductions made pursuant to personnel

policies) would be treating Jamie as an hourly, rather than

salaried, employee

CAA would pay her a total of $935

$850 (salary for 50 hours) +

$85 (0.5x OT for hours 41-50) Total: $935

If Jamie works 50 hours

OT hours included in workweek (hours 41-50) are already paid for

at straight time (1x) in Jamie’s salary. Thus, the CAA only owes an additional 0.5x premium for

these OT hours

OT hours 51-52 are not included in Jamie’s salary. Thus, the CAA

must pay a 1.5x premium for these OT hours

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Option #3B

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Regularly work more than 40

hours per week

May not work same amount of

OT each week

CAA wants to preserve

flexibility to work some OT

without need to get approval

each week

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Option #3B

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CAAs electing to use this option should communicate to their employees: – Straight time salary covers up to a number of hours (exceeding 40)

– However, CAA may not expect employee to work that number of hours every week

– CAA will pay for any hours worked over 40 (at applicable OT rates)

Number of hours included in workweek should approximate the number of OT hours the employee generally works



Option #3C

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Fluctuating workweek method: (29 C.F.R. § 778.114)

– Employee’s work hours must fluctuate from week to week

– CAA pays a fixed salary regardless of actual number of hours worked

– CAA pays overtime at 0.5x the employee’s regular rate of pay for hours worked over 40

– Employee’s regular rate of pay changes, depending on the actual number of hours worked that week

• This rate drops as the employee works more hours in a week

• But rate cannot drop below minimum wage

– CAA and employee must have a clear mutual agreement that the fixed weekly salary is total compensation for all work performed each workweek (apart from any OT compensation)

Pay Fixed Salary for Fluctuating Workweek, Calculate Regular Rate Based on Actual # of Hours Worked,

Pay 0.5x OT for Hours Worked Over 40

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Option #3C

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Example #3C: Randy, a licensed clinical social worker in a CAA’s health care program, is responsible for conducting home visits. His hours fluctuate from week to week, depending on his schedule of home visits for that week, but he typically works no more than 50 hours each week (and sometimes he works fewer than 40 hours). To use the fluctuating workweek method, the CAA must have a clear agreement with Randy that his fixed salary of $44,200 ($850 per week) represents total compensation (excluding OT premium payments) for all work performed in a workweek. The CAA must pay Randy $850 regardless of the number of hours he actually works. If Randy works more than 40 hours, the CAA would pay him OT at 0.5x his regular rate of pay. Randy’s regular rate of pay fluctuates each week and depends on the number of hours he actually worked that week.

Pay Fixed Salary for Fluctuating Workweek, Calculate Regular Rate Based on Actual # of Hours Worked,

Pay 0.5x OT for Hours Worked Over 40

Salaried, Non-Exempt Options Total Hours

Worked

OPTION #3A: Salary for 40 Hrs + 1.5x OT

(Example #3A: Alexa)

OPTION #3B: Salary for 50 Hrs + 0.5x OT (Hrs

41-50) + 1.5x OT (Hrs > 50) (Example #3B: Jamie)

OPTION #3C: Fluctuating Workweek: Salary for 50

Hrs + 0.5x OT (Hrs > 40) (Example #3C: Randy)

Regular Rate

OT Premium

Total Pay Regular Rate

OT Premium

Total Pay Regular Rate

OT Premium

Total Pay

WEE

K 1

40.0 $21.25 N/A $850

$17 N/A $850 $21.25 (40 hrs)

N/A $850

WEE

K 2

37.5 $21.25 N/A $850 $17 N/A $850 $22.67 (37.5 hrs)

N/A $850

WEE

K 3

50.0 $21.25 $31.88 (1.5x)

$1,168.80 ($850 plus 10 hrs at $31.88)

$17 $8.50 (0.5x)

$935 ($850 plus 10 hrs at

$8.50)

$17 (50 hrs)

$8.50 (0.5x)

$935 ($850 plus 10 hrs at

$8.50)

WEE

K 4

48.0 $21.25 $31.88 (1.5x)

$1,105.04 ($850 plus 8

hrs at $31.88)

$17 $8.50 (0.5x)

$918 ($850 plus 8 hrs at $8.50)

$17.71 (48 hrs)

$8.86 (0.5x)

$920.88 ($850 plus 8 hrs at $8.50)

WEE

K 5

52.0 $21.25 $31.88 ($1.5x)

$1,232.56 ($850 plus 12 hrs at $31.88)

$17 $8.50 (0.5x for

hrs 41-50)

$25.50 (1.5x for

hrs 51-52)

$986 ($850 plus 10 hrs at

$8.50, plus 2 hrs at $25.50)

$16.35 (52 hrs)

$8.18 (0.5x)

$948.16 ($850 plus 12 hrs at

$8.18)

TOTA

L $5,206.40 $4,539.00 $4,504.04

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Option #4

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Can adjust the amount of an employee’s earnings to reallocate it between regular (straight-time) wages and OT so that the total amount paid to the employee remains largely the same


Reallocate Earnings Between Regular Wages and Overtime to Approximate Same Overall Compensation

Regularly work > 40 hours per

week

Generally work the

same # of OT hours

each week

Are paid below the new salary

level threshold

Option #4

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Hourly wage must still be at least highest applicable minimum wage (federal, state, or local)

Employees’ hours worked must still be recorded

OT must be paid according to the actual number of hours worked each week

Wages must not be continually adjusted each workweek in order to manipulate the regular rate

Reallocate Earnings Between Regular Wages and Overtime

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Option #4

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Example: Roger, a program director at a nonprofit CAA who satisfies the duties test for the executive exemption, is currently paid a fixed salary of $39,520 per year ($760 per week) and regularly works 45 hours per week.

Reallocate Earnings Between Regular Wages and Overtime

CAA may choose to convert Roger to an hourly employee and pay him at an hourly rate of $16 and pay time-and-a half for the 5 overtime hours $640.00 (40 hours x $16/hour) + $120.00 (5 OT hours x $16 x 1.5) _____________________________ $760.00 per week ($39,520 per year)

Alternatively, CAA may pay Roger a salary of $33,280/year ($640/week) for 40 hours per week and pay time-and-a half for the 5 overtime hours $640.00 (salary for 40 hours/week, equivalent to $16/hour) + $120.00 (5 OT hours x $16 x 1.5) _____________________________

$760.00 per week ($39,520 per year)

Salary Plus Overtime Hourly Plus Overtime

Option #5

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Can redistribute or eliminate job duties to enable employees reclassified as non-exempt to complete their work within 40 hours each week – Hire additional employees

– Shift to exempt employees


Restructure Job Duties

Regularly perform duties

outside workday

Duties can be done

by 2+ employees

Duties can be shifted to exempt employees

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How Does the New Overtime Rule Affect Head Start Teachers?

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EXEMPT under the learned

professional exemption

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If a CAA currently treats its Head Start teachers as

EXEMPT under the teacher

exemption

The new overtime rule will not affect these teachers, as the salary level test does not apply to the teacher exemption. However, CAAs should ensure that their Head Start teachers meet all of the requirements of the teacher exemption, including the requirement that the CAA’s Head Start program be considered an “educational establishment.”

The teachers must meet the new salary level test ($913 per week) to maintain their exempt status. CAAs must evaluate each individual teacher’s credentials to ensure the teacher satisfies the requirements of the learned professional exemption.

CAAs do not need to make any changes based on the new overtime rule and can continue to treat the Head Start teachers as non-exempt.

NON-EXEMPT

Options for Classifying HS Teachers

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Poll #2: Head Start Teachers

How does your CAA currently classify its Head Start teachers?

a. EXEMPT under the teacher exemption

b. EXEMPT under the learned professional exemption

c. NON-EXEMPT

d. Some EXEMPT and some NON-EXEMPT, depending on educational qualifications

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Teacher Exemption

A subcategory of the professional exemption

Salary basis and salary level tests do NOT apply

– New overtime rule does NOT affect Head Start teachers classified as exempt under the teacher exemption

Primary Duty:

– Employee’s primary duty must be “teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge”

– Employed and engaged in this activity as a teacher in a school system or educational establishment or institution

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29 C.F.R. § 541.303

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Teacher Exemption

Educational Establishment: An elementary or secondary school system, an institution of higher education or other educational institution (29 C.F.R. § 541.204(b)) – Elementary and secondary schools defined as those day or

residential schools that provide elementary or secondary education, as determined under State law

– 2008 DOL Opinion Letter (FLSA2008-13NA)

• Do state’s laws include nursery school or kindergarten programs within the scope of elementary education?

• Is the child care center licensed by the state agency responsible for elementary education?

Note possible effect on unemployment eligibility if CAA is determined to be an “educational establishment”

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Learned Professional Exemption A subcategory of the professional exemption

Salary basis and salary level tests DO apply

Primary Duty: Performing work that requires advanced knowledge that is “customarily acquired by a prolonged course of specialized intellectual instruction” – Professions where specialized academic training is a

standard prerequisite for entrance into the profession

– Best evidence that an employee meets this requirement is possession of the appropriate academic degree

– But exemption not available for occupations that require only a 4-year degree in any field or a 2-year degree as a prerequisite for entrance into the field

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29 C.F.R. § 541.301

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Standard duties tests

– Executive, administrative, professional, outside sales, computer-related

Salary basis test

– Does not apply to doctors, lawyers, or teachers

Recordkeeping requirements

– CAAs do not have to convert all salaried employees to hourly employees

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Non-Exempt Employee Scheduling Myths

Non-exempt employees need to punch a clock

Non-exempt employees must sign in and out each time he/she starts and stops work

Non-exempt employees must have a predetermined work schedule

Non-exempt employees may not telecommute or work a flexible schedule

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FLSA Recordkeeping Requirements

Employers may use any timekeeping method, as long as it is complete and accurate

Employees with relatively fixed schedules: – CAA can keep a record of schedule (e.g., 8 hours per day)

and merely note that the employee followed the schedule

– Note any exceptions to schedule and report actual hours worked

Employees with flexible/varying schedules: – Employee doesn’t need to sign in/out or punch a clock

– Employee should keep and record the total number of daily hours worked

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FLSA Recordkeeping Requirements

Employers must maintain certain records for non-exempt employees: (29 C.F.R. § 516.2)

– Time and day of week when workweek begins – # of hours worked each day – Total hours worked each workweek – Basis on which employee’s wages are paid (e.g., “$12

per hour” or “$640 per week”) – Regular hourly pay rate – Total daily or weekly straight-time earnings – Total OT earnings for the workweek – All additions to or deductions from employee’s wages – Total wages paid each pay period

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Public CAA Employees: Comp Time

State or local gov’t agencies may still arrange for employees to earn compensatory time off (“comp time”) instead of cash payment for overtime hours – Provide notice to employee that comp time will be given

in lieu of overtime pay (e.g., by providing employees a copy of CAA’s personnel policies)

Comp time must be provided at a rate of 1.5 hours for each overtime hour worked – Example: If an employee works 44 hours in a single

workweek (4 hours of overtime), he would be entitled to 6 hours (1.5 times 4 hours) of comp time

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29 C.F.R. § 553.22

29 C.F.R. § 553.23

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Public CAA Employees: Comp Time

When used, comp time paid at regular rate of pay

Most state and local government employees may accrue up to 240 hours of comp time

Employee must be permitted to use comp time on date requested unless doing so would “unduly disrupt” operations of the agency

Only applies to state/local gov’t agencies, not nonprofits

Consult with state employment attorney re: state law

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29 C.F.R. §§ 553.20-553.23

Who’s Covered Under the FLSA?

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FLSA Coverage

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• Employees individually covered if they engage in interstate commerce or the production of interstate commerce

• May apply when enterprise coverage does not

Individual Coverage

• All employees of enterprise are covered if enterprise generates at least $500,000 in revenue annually from ordinary business activities

• Potentially competitive business practices

Enterprise Coverage

29 U.S.C. §§ 203(s)(1); 207(a) 29 U.S.C. § 207(a)

Enterprise Coverage: Commercial Activities

Charitable activities provided free of charge do not count as ordinary commercial activities

Certain types of revenue do not count towards the $500,000 annual threshold – Donations, member dues, contributions, etc.

Fee-generating services are likely to be commercial activities – Example: Income from a CAA’s fee-for-service

weatherization business would count towards the $500,000 annual threshold

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“Named Enterprises” Certain “named enterprises” are automatically

subject to FLSA (29 U.S.C. § 203(s)(1)(B))

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Hospitals Elementary, secondary & preschools

Institutions of higher

education

Nursing homes

Federal, state, and local

governments

Head Start programs are considered “named enterprises” (preschools) and employees are covered by the FLSA under enterprise coverage (HS Program Instruction PI-HS-HS-01)

Individual Coverage Individual employees covered if they engage

substantially in interstate commerce or the production of interstate commerce (29 U.S.C. § 207(a)(1))

Employees likely to be covered include those who:

– Order or receive supplies from out-of-state vendors (e.g., Amazon, other online/national retail stores)

– Communicate with out-of-state individuals or entities via phone/e-mail (e.g., federal funding sources, CAPLAW, other regional/national Community Action partner organizations)

– Handle credit card transactions/perform accounting & bookkeeping for such activities

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Individual Coverage

The safest approach for a nonprofit CAA is to assume that the FLSA applies to all of its employees

– Tests around enterprise coverage are not always clear about what counts towards the $500,000 threshold

– Courts have interpreted “interstate commerce” broadly

– Easy for employees to communicate with people and engage in transactions that cross state lines

– May not be administratively feasible to have some employees covered by the FLSA and others not covered

Use lack of coverage as a defense to a claim for FLSA violations

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Questions

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This presentation is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health

and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number 90ET0441-02. Any opinions, findings, conclusions, or recommendations expressed in this material are those of the

author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

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C Logue Caplaw: New Rules of the Road

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